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The Future of Audit

4/22/2014

By Tom Hanlon

“One word I would use for the audit profession is dynamic,” said Bryan Segedi, deputy global vice chair of assurance at Ernst & Young. “This is a very dynamic profession. The level of change is significant.”

Segedi, speaking recently at an accounting lyceum for the College of Business, said that while auditing procedures haven’t changed much over the history of auditing, technology is changing the profession in significant ways.

“We are investing over $400 million at EY in the transformation of our auditing practice,” he said. “We are developing tools that will give you insights that are different than the insights you have today.”

Transforming the audit practice

He named three specific investments that EY and other firms are pursuing to transform the audit practice.

First, he said, audit information is being made available to clients in a broader array of devices, including iPads and iPhones, and not just laptops.

Second, the level of interaction with the client is being ramped up. “Clients will have access to the work that we’re doing on a real-time basis,” Segedi said. “They will have visibility into our project management and the progress that’s being made.”

And third, “the use of analytics in the future is going to be very different than it is today. I’m talking about accessing 100 percent of a data set, accessing operations data as well as financial data, taking that data and putting it on a screen and putting it where you have visualization software that will highlight trends. And then it is up to our auditors to identify the anomalies that they’re seeing on the screen.”

This last transformation will call for auditors to have a thorough grip on the businesses that they are auditing. “If you don’t understand the business, understand the sector and the industry, understand what should be in those analytics, the flows, the peaks and the valleys, you're going to miss something,” Segedi explained. “We’re talking about shifting the mindset and skillset of our people to let’s look at 100 percent of these data sets, let’s focus our efforts on anomalies and risks that we see, by looking at these data sets, focus our procedures there.”

The use of improved analytics will enable auditors to share enhanced insights with clients. “We’ve piloted two sets of analytics, and it’s incredible the information we’re getting out of them,” he noted.

The profession is so dynamic right now, Segedi added, that “if you choose to enter public accounting, the work that you will be doing is going to be different than the work that is being done today. This change isn’t years on the horizon. This is probably 12 to 24 months away where this type of work is going to shift.”

The impact of globalization

Another change in the profession, Segedi said, has to do with globalization.

“I live in Chicago; my office is in London. It’s a heck of a commute,” he joked. “My team is spread out, some in Boston, some in London, some in Chicago. What you’ll find is that the world today is very real-time. With the technology advancements, the connectivity that you have to really build rapport and relationship are there to facilitate not being face-to-face and still being able to connect. And that’s something that you are much better prepared for than I was when I was your age. That is very important – building relationship and rapport.”

The pace of globalization, Segedi added, is only going to increase. “The implications of that for all of you are significant. In the world we live in today, what you might have viewed as middle market or starter businesses are global.”

He gave an example of a start-up that called him recently and wanted to use EY to set up accounts structuring and tax structuring. When Segedi asked the caller what their revenues were, the answer was “none.” They are launching their product in September, with markets in Hong Kong, greater China, and the US.

“And they needed sophisticated advice early in the process,” Segedi said. “That’s an example of the trend around globalization.”

Another aspect of globalization, Segedi added, is how it impacts audit teams. “Our audit teams need to interact with teams from other countries,” he explained. “How do you effectively communicate? How do we share knowledge and build relationships? Do we bring the [foreign country] teams over to meet with the US team periodically? Do we use video? What is the process we utilize?

“There are cultural differences that exist in how people communicate and what they communicate. So even if you are not doing work physically in a location outside of the US, you are interfacing on a regular basis with individuals within our firm from around the world, and the ethnicity and diversity from within our client base continues to escalate.”

Serving the private middle market

Segedi told his audience that students who were interested in serving smaller clients should be prepared to wear many hats.

“The entrepreneurial-sized clients, the private middle market, expects managers and senior managers who are serving them to be good auditors, but they also expect them to be very good business people,” Segedi explained. “They expect them to have general knowledge about a wide variety of topics. If you serve a client in the middle market, you better know something about tax and tax planning. You better know something about financial due diligence. You better have some background and knowledge on succession planning. You better be able to help them think through changes to their financial statement closing process.”

Segedi said he sees rapid growth for this private middle market. “And those companies like to be served by one professional services organization,” he said. “They like a very close and trusting relationship.”

The importance of trust and integrity

Speaking of trust, Segedi shared several thoughts on that topic. First, he said, auditors play a critical role in providing trust and confidence to the financial markets. “After all, an opinion means nothing unless the market respects the work that was done behind it. We are a critical component of the overall ecosystem of the capital markets.”

On a more personal level, he identified trust and integrity as the two keys to building a successful career.

“If you have those as your foundation,” he said, “it’s incredible what you can accomplish. You’re a person of your word and a servant leader. You’re out there trying to help others be better. It’s the people who are trustworthy who advance in our organization.”

He cautioned the students to never waver on their integrity. “Don’t allow yourself to be lulled into some false sense of security that doing something that’s over the edge is acceptable because the person next is doing it.”

The ILLINOIS advantage

Finally, he noted that Illinois students have a leg up on their competitors. “There are certainly peers,” he acknowledged, “but there is no better institution, in the US in particular,” to prepare for a career in accounting.

“So you have an advantage,” he concluded. “What you do with that advantage is up to you. It will open doors for you, but once those doors are open, it’s up to you to make the most of your opportunities.”